How to Decide Whether to get a Loan
Borrowing money can be all too easy these days and it can be really tempting to borrow money without really thinking about the consequences. It is worth thinking hard about getting a loan though as there are many factors to consider. It is really easy to just focus on the money that you will get and how that will benefit you in the short term without thinking about the impact that the loan might have in the long term. Therefore, it is a good idea to just have a think about the effects it might have in the future.
Cost of repayments
It is good to start by thinking about how much the repayments are and whether that is something that you will be able to afford. It can be hard to know if you will be able to afford it in the future, but firstly work out if you can afford it now. Look back at bank statements and see whether you have money left each month that you could use to repay it. If not, look at what you buy and see whether you could cut down in order to free up the money that you need. If you are confident with this make sure that you also think about the future. Consider how long the loan will last and whether you are expecting to have any extra-large expenses come along in the future and how this might effect your ability to repay the loan.
Having a loan will have an effect on your credit record, particularly if you miss a repayment. This could mean that if you want to borrow more money in the future, that you will not be able to because you do not have a good credit record. So, if you think you might want to get a mortgage or borrow money any other way or perhaps rent a property or some other thing that will require a credit check, then you will need to be careful about making sure that you do not do anything that will have a negative effect on your credit rating. You might think that it will not matter as the loan will be paid off, but if you miss a repayment or are late with one, then it will still show on your credit record even once the debt is paid off in full.
Cost of loan
It is well worth finding out how much the loan will cost you before you take it out. Take a look at the rates offered by Omacl.co.uk for example. You should be able to get this information form your potential lender. Do not just think about the amount you borrow, that you need to repay but also the costs of the loan. This is not usually just the interest rate but there might be other costs as well such as admin fees, late repayment fees and things like that. Try to find out the minimum that you will have to pay plus any additional fees you might have to pay as well. Also consider that interest rates may rise and if you are on a variable interest rate you may end up paying more.
The idea of missing payments has been mentioned before but it is worth thinking about more. If you cannot afford a repayment then you will be charged and this will increase the cost of the loan. It might increase the term of the loan as well or make it harder to repay. It will also affect your credit rating.
It is worth thinking of whether there are any alternative things that you can do rather than taking out the loan. There are many people, for example, that take out a loan and have enough savings to cover the cost but feel that they do not want to use that money. Or they could save up for what they are buying with the loan, but are not prepared to wait. So, think about whether you could use your savings to pay or if you could save up and wait a while before you make the purchase and then not have to pay so much money for it.
So, with so many factors, it is worth thinking hard before you get a loan. You need to make sure that you are happy to pay the extra money for the items that you are buying, due to the cost of the loan. Also consider whether there are alternatives which will leave you better off in the long term. That you can afford the repayments, even if the rates go up and if you can risk a possible change to your credit rating. Also think about whether you might be stressed by getting a loan and how this might impact you, particularly if you are really struggling to manage the repayments.